Summary:

As rate cut expectations in the Eurozone have been factored in for a few weeks, the market is now reassessing the timing of a rate cut by the ECB as economic conditions improve. In contrast, March's inflation data from Canada has bolstered the argument for a potential rate cut at the June meeting and Governor Macklem emphasized that inflation is still moving in the desired direction.

 EUR/CAD 4H

Macro View:

EUR: The EUR has performed better than expected at the start of this year, despite yield spreads indicating increasing policy divergence between the ECB and the Fed. The currency has been bolstered by evidence of strengthening cyclical momentum in the eurozone economy, which is expected to continue throughout the year as the impact of the negative energy price shock diminishes. Additionally, FX investors will seek further evidence of an improving Eurozone economic outlook and updates on discussions and prevailing views within the Governing Council regarding the timing of future rate cuts. The EUR could remain one of the more resilient G10 currencies, provided there are no significant data disappointments or dovish surprises from ECB officials.

CAD: March's inflation data from Canada has bolstered the argument for a potential rate cut at the June meeting. Core inflation has dipped below 2% on a 3-month annualized basis. Unless there are unforeseen developments in the April inflation figures, a rate cut in June seems highly likely. Governor Macklem emphasized that inflation is still moving in the desired direction, aligning with the Governing Council's preference for sustained evidence of downward inflation momentum. Furthermore, recent GDP and retail sales figures suggest weakness in Canada's economy, which could further incentivize the BoC to consider an earlier rate cut.

FX View:

DXM: A Tool to Gauge Retail Sentiments

EUR/CAD Current Retail Long/Short Position

The DXM shows that 9.2% of traders are bullish, while the remaining 90.8% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

EUR Futures’ seasonality movement

The seasonal pattern for the EUR suggests bullish momentum in the near term.

CAD Futures’ seasonality movement

The seasonal pattern for the CAD suggests bullish momentum in the near term. But seasonality does not take the latest economic development into account, by assessing with current Canada’s economy, CAD will be bearish for the time being.

Sources: Prime Market Terminal

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